Areva in Play?

Our index for Canada broke out of the recent downtrend which contained lower lows and lower highs, to power its way back near the highs of the year. As of last night, the index was up over 25% for the year! Quite impressive when you consider the diversification within it as well as the fact that we are but only 5 months into the year. We truly believe that we will see a downturn this summer, however it seems that everyone is looking for it, so there is the possibility it could be delayed, as it most likely will. Not because of the bulls trying to keep the bears at bay, but rather drill results this year will come out, in some cases, months after last season's. For many companies this will be the make or break year as they are running out of "priority targets" on their properties.

With our portfolio though, we are pleased with the progress made by Canalaska and Pitchstone in signing JVs and drilling out the properties. Canalaska is a stock which will have to be owned for years as they drill out their numerous properties, however as we move further through the development process, it will be much easier for them to sign JVs, and at higher prices. Pitchstone is going to wait at least until the end of this drilling season to figure out exactly what their 100% owned properties contain and may be worth, but our guess is that they will be able to command top dollar for those properties as they are prime. Remember that they were one of the first companies to begin re-staking the Athabascan Basin, and at the time had roughly 6 competitors for the same land (a third of which were Cameco and Areva/Cogema). Those are the two explorers whose results we are very interested in, not only because we have a financial stake in them through the portfolio, but also because they have some of the top properties in the Basin.

One stock which we had been watching very closely, Tournigan Gold (TVC.v) recently jumped 33% on news regarding their new resource estimates. They nearly tripled the reserve estimates from previous ones, and will begin to perform infill as well as deep drilling in order to clearly define the Kuriskova deposit. The company still believes that Kuriskova has good potential to be expanded, which would add further to their resources.

The French seem to be beginning to come around to the realization that socialism cannot mix with capitalism, with both prospering to their full potential. With the election of Nicolas Sarkozy, they now appear much more business friendly as he will relax the strict 35-hour work week as well as government intervention in the markets. The intervention within the markets was already under increasing scrutiny from European Regulators, however the French people seem to have effectively put a stop to that via their election. It is not clear how Segolene Royal would have enacted many of her proposals without running afoul with the EU regulations, but that is no longer an issue.

What is important to uranium investors and nuclear enthusiasts alike is that Nicolas Sarkozy has close ties with Anne Lauvergeon, currently the CEO of Areva. For those who follow the industry closely, you know that Areva is owned overwhelmingly by the French government and considered one of the "Champions of Industry" under the old government. Reports out of France via Le Journal du Dimanche indicate that Sarkozy wants to sell the French government's stake in Areva (still no indication on what amount) to Total SA, the French multi-national oil concern or to another group through a three way tie-up. The consortium would include Bouygues, Alstom (already 25% owned by Bouygues), and Areva. The deal would be financed via the sale of Bouygues Telecom as well as Bouygues' cable assets, and already the CEO of Dutch concern KPN has indicated that they would be very interested in any deal if Bouygues Telecom were to come up for sale. The rest of the deal becomes a bit more uncertain, as Bouygues could purchase more of Alstom and then merge Alstom with Areva or purchase shares in Areva and push a merger through. Another scenario could have them merging with Alstom, then purchasing/merging with Areva. At this point both deals are highly speculative, and Sarkozy's camp indicated that they are not talking at this point. Also, note that should this consortium merge, it would be combining the world's largest nuclear power station builder (Areva) with the world's third largest builder of power stations.

The biggest news however would be the significance of any deal involving Total SA. Total has not kept hidden their desire to become involved in some way in the nuclear cycle, as they announced just last year they would investigate the use of a nuclear power station to fuel their oil sands projects in Alberta, Canada. Also, this would bring in one of the world's largest oil companies into the nuclear renaissance, and the industry has a tendancy to follow each other into new forays, as well as desire to leapfrog one another when able to. Any deal for Areva automatically puts Cameco into play, as anyone else wanting to jump in would need to have the same scale as Areva and only Cameco currently offers that along with diversification around the world.

We are not discounting this news, but realize that it may take quite a while for any deal to surface, however when the French talk of selling assets, especially to French concerns, they usually mean business and do perform the task. This should be something to watch for every investor, and could quickly push the uranium mining shares to new hights. We continue to be 100% invested in our accounts (no more via margin, and no less via shorts), currently building up cash on the side, and patiently waiting for the correct time to add to the portfolio.

Summer Correction?

It appears that our uranium stocks are now in a correctional phase. Many factors could be the result of this, such as the "buy on the rumor sell on the news" regarding Australia or quite possibly this is a sell in May and buy another day. Regardless, it seems that we shall have some very decent buying opportunities presented to us in the coming months. Our index of uranium stocks indicates that we are now in a down trend as we have broken through many of our support levels, most recently the 300 point level. We have not added any new positions to our portfolio nor added to any current positions. We shall continue to eye those companies which present us with the best value over the summer, and when an opportunity arises, we will pounce at the opportunity.

We shall continue to eye URE and STM as we believe that those two stocks will present the best value going forward, but for the time being it seems that prices will only get cheaper. STM is actually at the top of our list as they may be adding a JV partner in the coming weeks. Also, shareholders will have the opportunity to vote on a resolution approving the spin-off of the Canadian assets in the coming months which could potentially add $1 a share in price.

Regarding the spot price, it needs to take a rest as it has done after many of its past runs, maybe pausing for at least 3 or 4 weeks at this point. Also, for those who pay attention to the volume associated with the spot market, the volume is very low. At this time there are not many utilities interested in buying U3O8, as they feel that the price is going lower. Keep in mind that they sign long-term contracts at $85/lb. as opposed to the spot price, unless of course they need to take direct deliver of the material. Many of the utility companies we have sources at have indicated that they have not hedged themselves against the upward rise of uranium in the next few years except for their dwindling reserves purchased many years ago at very low prices. I suspect that this is why the utilities are so interested in the NYMEX uranium futures contracts that shall shortly begin trading in the next week. I am not sure that the volume will be there for the utilities to hedge all of their needs, or what premium that these contracts will trade at, but I am sure that the procurement officials at the utilities will use these contracts to further delay purchases of uranium. These guys have been looking horrible in their predictions over the past few years regarding where the price of uranium was going, but with these contracts they can be wrong and right at the same time. The only problem with hedging themselves is that even if they reduce their risk to the upward rise in U3O8 prices, what exactly are they planning on running their reactors with? All that money that will pile up is not going to power 20% of America's electric needs.

There seem to be many bears coming out of the cracks trying to call a top in uranium at this time, and I feel as though they may get burned and burned hard. First these utilities will need to start purchasing uranium in large amounts in the next year or two in order to have sufficient reserves and supply to power their nuclear stations. Even with the new supply coming on the market from mines being expanded and new mines as well, remember that new reactors burn more uranium than those already in production. The market may have a last run right when everyone expects it not to as this extra demand will hit the market at the same time (utilities adding to their reserves as well as new plants around the world procuring the necessary fuel to begin powering up their reactors.

Laramide, one of our recent additions to our portfolio has been pounded in the last couple days as they adopted a 'Shareholder Rights Plan' which indicates to many that management is not really all that interested in selling the company right now. We are in this for the long haul, so this really does not change our thinking on the company, except that we could possibly see some interesting buying opportunities ahead of us now.

Also, Oilsands Quest has been hammered recently although they have been successful in their drilling and added some highly prospective land across the border in Alberta. The company continues to pursue a JV partner, but is holding out for top dollar. Apparently many are interested, as indicated by the last conference call, but the sides cannot agree on the make-up of the partnership. My belief is that the longer the company continues to add barrels to their reserves for pennies-on-the-dollar, the more they will realize from any potential JV projects.

We will continue to search for value in the markets, and may pull the trigger on some trades if they present themselves. However, we shall continue to allow our capital to accumulate so as to "go all in" in a big way when we re-enter the marketplace. We will continue to monitor our uranium index over the next few weeks in order to see if the downward trend continues, or if we establish some support on the way down. When support is established and we can surely see that we are once again in an upward trend, we will make our announcement.